Is your B price following the market?

Published 29 November 16

As spot milk and commodity market prices rise, farmers on A&B pricing are asking how the spot milk price should reflect in their B price. AHDB previously looked at the impact of spot milk prices on the wider market. The volume of milk being sold on the spot market is extremely small, and using it as a guide to B prices is therefore difficult. Of more relevance is how B prices are moving alongside commodity market prices or AMPE. This is because any spare milk available in the country can be converted into butter and SMP, provided there is enough processing capacity for those products and the milk processor has no other market outlets for the milk. There is certainly enough capacity at present.

A milk processor’s ability to take advantage of improved commodity markets relies on them having milk available over and above their core customer requirements. Milk production is significantly down at present, which is the main reason why spot prices are as high as they are. Therefore, those with A&B pricing contracts may be having to supplement a lack of A volume with B volumes in order to satisfy core needs. This would restrict the processors ability to take advantage of the improved market position, and thus limit their ability to increase the B price in line with AMPE. Individual milk processors will also be affected by how they allocate A volumes, and in particular whether the allocation is seasonally profiled or flat through the year.

B prices and AMPE Nov16 

The chart above shows the average B price announced by milk buyers who are contributing to AHDB’s Milk Price Calculator, compared with Net AMPE*.

AHDB would encourage any farmer on A&B pricing to engage with their processor to understand how their B price is being set and why it is where it is.

 

*Net AMPE equals AMPE minus 2ppl as an indication of milk transport costs from farm to factory.